Money & Banking

Banks should be permitted to fund unpaid interest and reschedule loans, says RBI Central Board Director

K Ram Kumar Mumbai | Updated on April 09, 2020

To help the economy overcome the twin blows of lockdown and slowdown triggered by the COVID-19 pandemic, banks should be permitted to fund accrued/ unpaid interest for six months and reschedule loan accounts, wherever necessary, without being downgraded, according to Satish Marathe, Director, Central Board, Reserve Bank of India.

The aforementioned suggestions, made in a letter to Prime Minister Narendra Modi, come in the backdrop of the lockdown and slowdown completely disrupting operations of the manufacturing sector, including small, medium and large enterprises; crippling supply chains and small and retail businesses; and lakhs of units in the unorganized sector almost coming to a complete stand still.

Marathe also said the prudential norms for banks relating to income recognition, asset classification, provisioning and downgrade of borrowal accounts need to be kept in abeyance.

Further, reporting of all accounts that must have got classified as non-performing assets (NPAs) during the just concluded Financial Year 2019-20 should be temporarily suspended.

Marathe emphasised that Banks should be permitted to reschedule all borrowal accounts, wherever necessary, without the same being downgraded. They should also be permitted to fund accrued/unpaid interest, which can be allowed to repaid in six monthly installments commencing from 1st October, 2020.

Additionally, Banks should be allowed to rework borrowers’ working capital limits with reduced margins of 15 per cent and 25 per cent for all stocks and book debts, respectively.

“We need to seek the active involvement of our banking sector to rebuild the economy.

“If advances accounts get classified as non-performing assets (NPAs), due to both lockdown and slowdown, chances of revival of such accounts would be bleak as Bank officials continue to be apprehensive of possible future investigations by the Central Vigilance Commission, Comptroller and Auditor General, and Central Bureau of Investigation,” said Marathe.

Moreover, when advance accounts get classified as NPAs, Banks get adversely impacted financially which would ultimately result in Government of India infusing additional Capital.

“Merely by injecting liquidity, reducing interest rates, providing guarantees through special purpose vehicles/Small Industries Development Bank of India, relaxing delinquency norms in the current year will not result in revival of Indian Economy.

“These are exceptional times and the need is to take exceptional steps,” said the RBI Central Board Director.

Published on April 09, 2020

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